Vox warns against Telkom

[Necuno]

Vox warns against Telkom

Telkom is the only operator that will get a Christmas present if interconnection rates are cut immediately, and it will use it to cross-subsidise and frustrate competitors, said Vox Telecom CEO Tony van Marken.

JSE-listed Vox Telecom, which has made a name for itself in the least-cost routing (LCR) market, was the last to present before Parliament during the marathon two-day public hearings into the interconnection rate and proposals to reduce it.

In its presentation, Vox said it did not mind a smaller immediate cut in the interconnection rate. However, it strongly recommended that a lower rate, such as Parliament's suggested 60c per minute, should be done incrementally over a longer period.

Van Marken made no bones about his company's standpoint. He emphasised that while its LCR business did stand to lose, the point was that it needed time to convert customers, and that interconnection was not the only means of reducing overall telecommunications costs.

He said Vox Telecom and other smaller players in the LCR sector had made a business out of the current regulatory regime by being more efficient and offering real savings to their clients, despite having none of the advantages of the incumbents.

“MTN, Vodacom, Telkom – all have been given significant advantages by government and the regulator [ICASA]. We have had none of these and have still made a business. So I urge you to carefully think [the decision] through,” he told the politicians.

Bonus for Telkom
Van Marken said that, if the interconnection rate was cut immediately, from 125c per minute to Parliament's proposed 60c per minute, it would be like handing Telkom a R2.4 million bonus.

On Tuesday, Telkom SA CEO Pinky Moholi admitted the country's dominant fixed-line operator had paid out R5.8 billion in interconnection fees to the mobile network operators for calls terminating on their networks.

Van Marken went on to say that, while Vox Telecom was moving away from LCR into other services, such as voice over IP and placing customers on its own network, it still depended heavily on the arbitrage opportunities presented by Telkom national rates being so expensive.

“They [Telkom] took us to court and we won. They refuse to do geographic number portability for our clients, and so they continue to try and force out challengers.”

Van Marken added that government had been a net benefactor of Telkom dividends when the fixed-line operator owned 50% of Vodacom.

“Telkom listed in 2003 and has paid out R7 billion in dividends, plus a special R10 billion dividend for the unbundling of Vodacom for a total of R17 billion,” he said. “The Department of Communications [government's shareholder representative] owns 40% of Telkom, meaning they received R6.8 billion.”

Van Marken claimed that now that government was no longer a recipient of Vodacom's dividends, it did not mind attacking the interconnect rate.

ANC MP Eric Kholwane asked how Vox Telecom takes clients away from the incumbents, while still using their networks and paying the high interconnection fee, as well as in the face of the incumbents' anti-competitive behaviour.

“It is very simple,” replied Van Marken. “We capitalise on their inefficiencies. We, and other companies like us, are efficient and we pass on the savings to our clients. We are the good guys.”

makes sense if one could believe that mbeki cash cow didn't want to play nicely with zuma and went STFU...

 

[MadMailMan]

What a load of ***! If they didn't have to pay the mobile operators R5.8 Bil. then the charges for calls to cells would have to drop by the same amount so the only people that should be better off are the people making the calls and now being charged a lower amount.

Has it gotten to a stage in South Africa that if you don't like something you just blame Telkom and noboy thinks about it, they just agree with you. Sometime I think these CEOs are as thick as swine doodoo.

 

[Lightscribe]

Telkom is the only operator that will get a Christmas present if interconnection rates are cut immediately, and it will use it to cross-subsidise and frustrate competitors, said Vox Telecom CEO Tony van Marken.

Well said.

The other key point we can take from this whole saga is the fact that government cannot play the role of policy director in sectors in which it is heavily invested, because it may be looking after its own interests and not those of South African consumers. http://mybroadband.co.za/news/Business/9761.html

Yep. Standerton is but the latest signs of public discontent...

Watch what happens when the eskom price hikes sink in...

 

[Peon]

No wait dude. He has a point. If they wield an axe right now and cut it immediately to 60c, telsh_t will only have to pay half what it owes. So give it a few months to sign new orders at the new rates. Otherwise telsh_t originally had to pay R30 rand but now only have to R15 and they can keep the left over. Massive bonus.

 

[MadMailMan]

No wait dude. He has a point. If they wield an axe right now and cut it immediately to 60c, telsh_t will only have to pay half what it owes. So give it a few months to sign new orders at the new rates. Otherwise telsh_t originally had to pay R30 rand but now only have to R15 and they can keep the left over. Massive bonus.

So what you are saying is that if Interconnect rates are forced down by the gwavament they won't also force down the actual call costs that the consumers pay. I don't think even this gwavament is that stupid. If IC rates drop by 60c per minute then the call costs between networks, telscum included, will also have to drop by 60c per minute. I.E. no bonus moneys for anybody except Sipo consuma.

 

[Lightscribe]

“Several errors have been made. Are we learning? South Africa and all the consumers of electricity have not been given a clear vision of the future of the industry and the strategy as to how we will achieve it.

“We all need to see clear leadership in achieving this vision with the necessary passion to back it up. We are already too late to avoid the crisis from deepening but it is clear we need a vision now.

“If there is such a vision, I, like most South Africans, am not aware of it.”

McRae commented that when government “placed the shackles on Eskom and its plans”, the Eskom board should have informed the regulator and its customers immediately of the risks that would arise from this.

He said: “The reality is that the Eskom board did not make South Africans aware of the implications of government’s decision. Had it done so, the board, the regulator and the customers, especially large customers, could have delayed the decision or even persuaded the government of its error.”

McRae said: “The board failed to prevent government from causing delays in implementing its expansion plans and this has had a major impact on the country’s economic growth.”

He said the key government decision was to turn down Eskom’s generation plan in 1998, which indicated it would require new capacity to come on stream by 2006.

“By the way, this was a plan I had approved as regulator just before leaving. In fact, Eskom would have been spot on had government not interfered.”

McRae also said the Eskom board had to be held accountable for running down coal stockpiles at its power stations and for paying dividends to government with money that should have gone instead to the Capital Development Fund.

He said: “I believe the board failed in its responsibilities by allowing the demise of the Capital Development Fund (introduced in the Electricity Act in 1972) and, in its place, paying dividends to its shareholder, the government.

“There also appears to be inadequate financial planning at Eskom, especially in the light of the generation expansion plan and the policies adopted around coal and skilled staff, which has led Eskom into a cash flow problem.

“Furthermore, the board must take responsibility for deficient coal procurement practices and the depletion of Eskom’s coal stockpiles."

In particular, McRae attacked the decision by Eskom to diversify from long-term coal supply contracts with major mining groups towards greater purchases on the spot market from “all and sundry”.

He said: “We have seen the demise of very good, cost-plus coal contracts that Eskom had with the coal mining industry to supply coal.

“These were also associated with mine mouth power stations in which no transport costs were involved, leading to a very efficient coal mining industry.

“The loss of close output planning and operating plans between collieries and power stations has resulted in collieries battling to meet some of the loading requirements of power stations.

“The opening of the doors to all and sundry to supply coal from wherever has brought about the delivery of poor quality coal to certain stations, for example coal with high abrasiveness due to rock inclusions – coal qualities for which the boiler plant has not been optimised.

“The cost of additional off-contract coal up to that of export prices of some $100 per tonne – more than double or triple the prices of Eskom’s cost-plus contracts – has had a severe impact on its operating costs which will be passed through to customers in the form of significantly higher electricity tariffs.” http://www.miningmx.com/news/energy/ex-ceo-slams-eskom-board.htm

Our government will be the downfall of SA...I mean...It is... http://www.thoughtleader.co.za/char...te-500-000-jobs-then-your-job-is-on-the-line/

 

[Peon]

You right its one and the same. So telkuk and vox will pay each other less, but Sipo consuma will still pay the same as always, it will be christmas for the major ops it will send their profits thru the roof for a few months until its settles.

Hmm, sounds like there is a wolf in sheeps clothing somewhere in that portfolio committee

 

[MadMailMan]

You right its one and the same. So telkuk and vox will pay each other less, but Sipo consuma will still pay the same as always, it will be christmas for the major ops it will send their profits thru the roof for a few months until its settles.

Hmm, sounds like their is a wolf in sheeps clothing somewhere in that portfolio committee

I wonder if anybody on that portfolio committee has any ties to that Elephant consortium? Anybody have any ideas?

 

[cavedog]

I watched this discussion on the Parliament Channel on DSTV. Its channel 408 or something in the 400-410

Anyways I watched it live and it was real interressting to hear their discussions. VOX is moaning cause it will loose money cause they found a way around the interconnect method. So what they want is that it must stay high so they can make money from their customers!

Screw VOX and bring the interconnect rate down. They are selfish!!!!!!!!!

 

[Peon]

cavedog, your enthusiasm is infectious. See we vent our anger online. Khutsong residents and others burn tyres and belt the police. Point is, people who are getting screwed(black+white) are getting gatvol. The middle class are raped by tax,insurance co,telecoms, banking etc,etc and the lower class have very poor service delivery.

I see the service riots have started in Harrismith as well. Its fine to live in your castle with servants and splendour, but the hungry and desperate are numerous. Eventually they will consume you. Is that not the basis of the French Revolution?

telkuk is like Mary Antoinette, and must suffer the same fate.

 

[Syndyre]

cavedog, your enthusiasm is infectious. See we vent our anger online. Khutsong residents and others burn tyres and belt the police. Point is, people who are getting screwed(black+white) are getting gatvol. The middle class are raped by tax,insurance co,telecoms, banking etc,etc and the lower class have very poor service delivery.

I see the service riots have started in Harrismith as well. Its fine to live in your castle with servants and splendour, but the hungry and desperate are numerous. Eventually they will consume you. Is that not the basis of the French Revolution?

telkuk is like Mary Antoinette, and must suffer the same fate.

Let them eat cake.

The problem is that this government action may solve some short term problems but the root cause, government regulation and protection still exists. This sector needs to be fully opened up to competition and the government needs to ensure Telkom's fully privatised so it doesn't have any vested interests in the outcome. The same should be done with Eskom, SAA, ACSA, Transnet etc but it'll never happen with the government's leftist tendencies.

 

[Lightscribe]

The Eskom story started a while ago...it will get much, much worse...

Allen Morgan, the then chief executive of Eskom, and Brian Gilbertson, his opposite number at Gencor, were proud of the partnership they had formed. They flew in a group of company analysts and media people to witness the opening of the substation and the commissioning of Hillside a month later.

But Morgan clammed up when asked about electricity tariffs for keeping the enormous plant operational. "They are related to the price of aluminium on the London Metal Exchange," was all he was prepared to say. Gilbertson declined to comment.

...

How does US PPI tie in?

But there is another perplexing indicator - the American producer price index (PPI).

What on earth has the USs' PPI to do with aluminium production in South Africa?

And even more disturbing is a table published in the annual report every year indicating the sensitivity of Eskom's profit or loss to the American PPI, and which shows that Eskom's exposure to the negative side of these contracts has been rising year after year.

In 2005 the annual fair-value loss or profit from aluminium production was a small loss of R5m, 2006 saw a profit of R1.4bn, 2007 a profit of R4.3bn, 2008 a loss of R143m, and this year a massive loss of R9.514bn.

The American PPI has seemingly become a poison pill for the contract, because one can forget about getting any answers from Eskom or Billiton in this respect.

This can mean only one thing: that the original contract and the formula for calculating the tariff places Eskom in a weaker position year after year, while the parastatal has to continue delivering 1 200MW to Hillside for another 15 years, and 1 000MW-odd to Mozal for 20 years.

Billiton simply says the tariff is internationally competitive - and that's that. This cannot be true, because all producers of chrome, which is just as power-hungry as aluminium, switched off their smelters in the economic downturn since production had become unaffordable.

This, while Billiton was producing aluminium as if it's going out of fashion and is moreover a making a R1.5bn profit from it, R1.4bn of which derives from "embedded derivatives". Can "embedded derivatives" perhaps be read here as code for "Eskom subsidy"?

By the way, for the South African chrome industry Eskom does not conclude contracts for longer than five years. And Eskom's aluminium subsidy is being openly discussed.

How big will this Eskom subsidy become in future? Take a look at the American PPI which is currently -5%.

These questions are crucial for South African electricity consumers and the broad South African public. Eskom and Billiton will have to respond sooner or later. http://www.miningmx.com/news/markets/Eskom-desperately-seeking-a-plan.htm

 

[mikef]

What a load of ***! If they didn't have to pay the mobile operators R5.8 Bil. then the charges for calls to cells would have to drop by the same amount so the only people that should be better off are the people making the calls and now being charged a lower amount.

Has it gotten to a stage in South Africa that if you don't like something you just blame Telkom and noboy thinks about it, they just agree with you. Sometime I think these CEOs are as thick as swine doodoo.

So what you are saying is that if Interconnect rates are forced down by the gwavament they won't also force down the actual call costs that the consumers pay. I don't think even this gwavament is that stupid. If IC rates drop by 60c per minute then the call costs between networks, telscum included, will also have to drop by 60c per minute. I.E. no bonus moneys for anybody except Sipo consuma.

You do not seem to have been following the interconnect debate very closely - the perception that a decrease in the MTR results in a decrease in retail tariffs to the consumer is a myth. I am not aware of any legal method that the DoC or the Parliamentary Committee can use to "force" down the actual call costs that the consumers pays.

 

[Speedster]

You do not seem to have been following the interconnect debate very closely - the perception that a decrease in the MTR results in a decrease in retail tariffs to the consumer is a myth. I am not aware of any legal method that the DoC or the Parliamentary Committee can use to "force" down the actual call costs that the consumers pays.

Then you STILL haven't heard of ICASA.

 

[Sting]

VOX will fold if the interconnect rate is dropped by a significant amount. Of course they will attempt to deflect the attention away from the MTR, their entire business model depends on it!

 

[RazedInBlack]

Interconnect rate drops, electricity costs increases.

We still screwed.

Recession? I've been in a recession my whole life! Nothing new!

 

[Playoff]

I watched this discussion on the Parliament Channel on DSTV. Its channel 408 or something in the 400-410

Anyways I watched it live and it was real interressting to hear their discussions. VOX is moaning cause it will loose money cause they found a way around the interconnect method. So what they want is that it must stay high so they can make money from their customers!

Screw VOX and bring the interconnect rate down. They are selfish!!!!!!!!!

As has been pointed out Vox's argument lacks logic.

The real truth is that VOX has a product (http://www.voxconnect.co.za/voip-telephony/products-and-services/vox-vaya.html) that allow the cell phone users to phone international numbers through a Vox number at their local cell phone call rates because VOX gets a high interconnect rate rebate from the cell phone operators for calls to its "free international connect number" and this rebate is much higher than VOX pays for connecting the international call.

In ther words VOX makes money out of the high interconnect rebate it receives from the cell phone operators.

Vox wants the consumer to continue paying a high interconnect rate to protect its profit base and it is trying to tout itself as the poor little underdog.

 

[mikef]

Then you STILL haven't heard of ICASA.

Thanks for letting me know about ICASA.

I am no expert but I doubt that ICASA is exempt from the law of the country. Seeing as you have inside contacts (you did say your father assisted with the drafting of the cellular regulations if I remember correctly) please try and provide me with some link to ICASA's authority to order a decrease in retail mobile tariffs. As in the case of Telkom I suspect that they have oversight authority over changes to these rates and possibly the authority to block undue increases but I doubt the authority to order decreases. I would guess that changes to the license conditions that are prejudicial to the license holder would require the license holder's agreement. ICASA authority comes from legislation and as such is certainly not unlimited.

 

[Necuno]

icasa and [-]cusato[/-] is the tools of the goverment; think vodacom deal...

 

[Gatecrasher]

Let's not forget that Telkom also got a roasting in Parliament:

Telkom fends off Parliamentary anger

There is no defense for interconnect rates to be above cost. None whatsoever. Those protesting against them being cut are holding up progress and competition in the industry. They are putting self interest above the national interest.

While there is no guarantee that retail prices will drop immediately when interconnect rates are cut, it will certainly open the market to more intense and unfettered competition. And that in due course will bring prices down.